Retail giant Wesfarmers appears in pole position to acquire pharmaceutical wholesaler Australian Pharmaceutical Industries (API) after sweetening its takeover bid and winning the support of its directors.

Wesfarmers made its first offer for the Priceline operator back in July at $1.38 a share, but API’s board rejected the bid on the basis that it undervalued the company. On Thursday, Wesfarmers made a fresh $1.55-a-share offer, valuing the business at around $765 million.

The new price was enough for API’s board to agree to open its books to Wesfarmers for due diligence, with the company saying it intends to unanimously recommend shareholders accept the offer on the basis that no superior offer is received, and it gets approved by an independent expert.

Shares of API, which operates the Priceline chain of pharmacies, rocketed 14 per cent at the market open and were trading at $1.46 at 11:45am.

The offer allows for a final API dividend for the 2021 financial year up to a maximum of 5 cents per share, which will be deducted from the offer price.

API boss Richard Vincent said the new bid better reflected “the strength and potential of our stable of businesses”.

Wesfarmers wants API to form the basis of a new healthcare division within its retail conglomerate, and managing director Rob Scott said it would look to strengthen and grow API’s market position.

“Wesfarmers supports the community pharmacy model, including the pharmacy ownership and location rules,” he said.

“If the proposal is successful, we see opportunities to invest to strengthen the competitive position of API and its community pharmacy partners by expanding ranges, improving supply chain capabilities and enhancing the online experience for customers.”